HOTELoC is under credit watch following a press release by Morgan Stanley concerning the Orb Group's business woes. According to market sources, there is an ongoing investigation by the English Serious Fraud Office into certain members of the group. An investigation by Ernst & Young and Morgan Stanley found a shortfall in the cash flows within the transaction. "The pertinent question here is what's happened to the missing funds?" asked one analyst.

The notes in the transaction are backed by a single loan from Morgan Stanley Dean Witter to Jersey-based Hotel Portfolio II and the U.K.-based Hotel Portfolio II - both members of the Orb Group of companies. The loan is secured on hotel assets owned by the Orb Group that are leased back to Thistle Hotels. At present, the Orb Group has defaulted on the two loans from Morgan Stanley Dean Witter and is looking to exit the hotel business.

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